It is critical to diversify your investment portfolio. If you put all your eggs in one basket, you could lose everything in an instant. You can boost your chances of better earnings and less losses by investing some funds in the stock market, other funds in bonds or ETFs, and other funds in real estate.
Many people are hesitant to engage in real estate because they believe it is risky or requires a large sum of money. Neither of these statements is correct, and to comfort you, here are eight excellent reasons why real estate is a sound investment.
The Top Reasons Real Estate is a Good Investment
If you’re considering real estate investment, you’re about to embark on one of the most rewarding investment experiences of your life. Even if you’ve never invested in real estate before, here are the top reasons to think about it.
You Can Leverage Your Investment
There aren’t many other investments that allow you to put your money into assets that are worth substantially more than you put in. If you have $10,000 to invest in the stock market, for example, you can typically buy only $10,000 worth of stock. The only exception is if you invest on margin (borrow), which requires you to be an accredited investor with a high net worth.
You can invest in real estate by putting down a fraction of the home’s cost. Let’s assume you located a home for $100,000 and put down $10,000; if you have decent credit and a steady salary, you should be able to get a loan to cover the rest of the cost.
That means you just have to invest 10% of the asset’s worth to own it. Then, as you pay down the mortgage, you’ll be able to keep more of the investment over time, boosting your rate of return not only by paying down the mortgage but also by the natural appreciation of real estate.
You Can Force Appreciation
Unlike stocks and bonds, real estate may be forced to appreciate. It may sound strange, but it is possible.
First and foremost, understand that real estate appreciates over time. Real estate appreciates at a rate of 3% to 5% each year on average, and you don’t have to do anything but maintain it. Renovations or repairs, on the other hand, might accelerate the rate of appreciation.
Because not all improvements increase a home’s value, consult a certified assessor or real estate agent to determine the best (most valuable) renovations to do.
Although you won’t get a dollar-for-dollar return on your investment, some improvements can repay as much as 80% to 90% of the money you put in.
Renovations do not have to be extensive. Of course, adding a room or finishing a basement will add more value to a property than simple cosmetic updates, but even minor kitchen and bathroom updates can have a significant impact on its value.
- You’ll Get Tax Benefits
Real estate investors, like any other business owner, can take advantage of numerous tax deductions. When you own a property and rent it out, though, you are running a business – you are the landlord.
You can generally deduct the following expenses as a business owner:
-The amount of mortgage interest that has been paid on the loan
-The loan’s origination points were paid.
-The cost of upkeep
-Depreciation is a term that refers to the process of (spread out over 27.5 years)
-HOA dues, property taxes, and homeowner’s insurance
Always consult your tax professional before thinking you can deduct expenses, but keep in mind that real estate investment is a benefit. You can only write off capital losses if you sell an asset for less than you bought for it when you invest in stocks or bonds.
- You Can Earn Regular Cash Flow
You can generate monthly cash flow renting out real estate if you buy and hold it, which boosts the benefits from owning real estate because you aren’t dependent solely on appreciation but also on monthly rental revenue.
Buying investment real estate, finding reliable tenants, and managing the property may be daunting, but there are numerous resources available to assist you.
Roofstock Marketplace is an excellent source of information. They don’t only advertise potential investment properties for sale; many of them already have tenants and leases in place. As a result, when you buy a house, you automatically become a landlord. Roofstock also does a lot of the legwork for you, so all you have to do is pick the ideal property for you.
Of course, there’s always the possibility of tenants defaulting or abandoning the property early, but any investment comes with a risk. There can be no profit if there is no risk.
You May Feel Financially Secure
When it comes to investing in the stock market, there isn’t much to be confident about. However, as the year 2020 shown, everything may change in the blink of an eye. You have a substantial investment one minute and then lose it all the next.
When you invest in real estate for the long run, you know you’re getting a valuable asset. Housing may go through ups and downs, losing some value along the way, but if you hang on to it long enough, it usually recovers.
Many people buy real estate to supplement their income in retirement. You’ll enhance your retirement income whether you own the property while you’re retired and use the monthly rental cash flow to supplement your income, or you sell a property you’ve held for many years and profit once you’re retired.
Some people feel safer knowing their money is invested in a safe investment (real estate) rather than in a cash account or in the stock market.
There Are Many Ways to Invest in Real Estate
If buying and renting out real estate is too stressful for you, there are a variety of other options, including:
-Be a wholesaler, acting as a middleman between motivated sellers and a network of buyers, by purchasing an undervalued property, fixing it up, and selling it (fix and flip).
-Use home hacking, which is purchasing a 1–4 unit property, living in one unit, and renting out the rest to fund your mortgage.
-Purchase a Real Estate Investment Trust (REIT).
- You Can Pass Real Estate Down to Your Heirs
If you want to leave a legacy but don’t think going cash is the best option, passing down real estate may be a better option.
Not only will you be leaving an income-producing asset to your heirs, but it will also appreciate in value. So they have the option of keeping the land and preserving the legacy, or selling it and profiting.
You Can Use the Equity to Increase Your Real Estate Portfolio
Growing your real estate portfolio is a popular approach to use the equity from an investment property. Let’s imagine you own a home and have $50,000 in equity. You can refinance the loan, take $50,000 out of it, and use it as a down payment on your next home.
You may even be able to pay cash for future homes, boosting your portfolio and equity even faster, depending on the value of existing properties.
THE BOTTOM LINE
Real estate is a fantastic opportunity to broaden your investment horizons. You can reduce the risk of high-risk investments, such as stock market investing. Furthermore, if you invest in rental properties, you can benefit from the income flow while the property appreciates, providing big capital gains when you need it most – in retirement.
If you need it to be, real estate can be a liquid asset. Don’t invest money you won’t need right away, but keep in mind that any money you put into real estate can usually be liquidated within a few months if necessary. If you’re selling an investment property, Roofstock Marketplace is a great way to sell to other investors, allowing you to move properties quickly and achieve your financial goals.